Beginning in 2015, foreign companies operating in China began to notice—some for the first time—the increasing presence of Chinese Communist Party (CCP) organisations within the day-to-day activities of their firms. Companies in joint-ventures (JV) with Chinese private firms and state-owned enterprises (SOEs) reported demands to revise the articles of association to give the Party organisation (党组织) legal standing within the JV’s corporate governance structure, while others grew alarmed after Party representatives within the foreign firms demanded input to personnel decisions, including layoffs and promotions.
This development was met with deep scepticism by the foreign business community. In November 2017, the Delegation of German Industry and Commerce issued a statement warning: ‘Should … attempts to influence foreign invested companies continue, it cannot be ruled out that German companies might retreat from the Chinese market or reconsider investment strategies’ (He 2017). Similarly, the European Union Chamber of Commerce in China declared: ‘This development is of great concern to foreign JV partners as it significantly changes the governance of the JV and undermines the authority of the JV Board’ (EU Chamber of Commerce 2017).
Foreign companies need not have feared that they were alone in being targeted: Chinese private firms were similarly coming to grips with a newly-energised Party apparatus demanding increased involvement in enterprise decision-making. As reported by the Asian Corporate Governance Association, between the 2015 and the summer of 2017, more than 180 Chinese companies amended their articles of association to give the Party a formal company role (Allen and Li 2018). In September 2018, the China Securities Regulatory Commission released the Code of Corporate Governance for Listed Companies, which mandated the establishment of a Party organisation in domestically-listed firms and required that companies provide the ‘necessary conditions’ for Party activities.
Read the full article in the Made in China Journal.
More from CNAS
CommentarySharper: Global Coronavirus Response
As regions across the United States enforce states of emergency and a growing list of countries restrict travel, close schools, and quarantine citizens, the economic and human...
By Chris Estep & Cole Stevens
PodcastChina, Europe, and COVID-19 with CNAS’s Ashley Feng and Kristine Lee
Ashley Feng and Kristine Lee join Andrea Kendall-Taylor and Jim Townsend to explain China’s response to COVID-19 on the latest episode of Brussels Sprouts. Feng is a Research ...
By Andrea Kendall-Taylor, Jim Townsend, Kristine Lee & Ashley Feng
CommentaryCan the G7 Stop the Coronavirus?
The world’s leading governments are throwing all they have into the coronavirus fight. Recent days have seen dramatic social distancing requirements, novel border controls, ma...
By Gary Edson & Richard Fontaine
CommentaryVirus Competition Is Wrecking China-U.S. Cooperation Hopes
As Washington shifted its worldview over the last several years to a sharp focus on China competition, even the most claw-bearing hawks generally left open the possibility of ...
By Richard Fontaine